Applied vs. Actual Manufacturing Overhead
Davis Manufacturing Corporation applies manufacturing overhead on the basis of 150% of direct labor cost. An analysis of the related accounts and job order cost sheet indicates that during the year total manufacturing overhead incurred was $157,500 and that at year-end Work in Process Inventory, Finished Goods Inventory, and Cost of Goods Sold included $20,000, $10,000, and $70,000, respectively, of direct labor incurred during the current year.
a. Determine the under applied manufacturing overhead at year-end (assume it is significant).
b. Prepare a journal entry to record the disposition of the underapplied manufacturing overhead.